Shift Or Stay?

Posted by msmessenger on Jun 1, 2016 12:00:00 AM

User Trends In Storage Technology

While the core business of self-storage hasn’t changed much in 20 years, the way the industry goes about attracting, capturing, and serving its customers has seen a dramatic shift. Today the self-storage sector is served by forward thinking, technology savvy vendors. Moreover, it is being driven by top-tier operators that are aggressively leveraging technology. In addition, technology has widened the gap between the tech haves and the have-nots.

Recently, we commissioned a survey in conjunction with Mini Storage Messenger to see where our marketplace is headed, to better understand where operators are focusing their time and energy, and to note the particular issues they consider priorities for the coming years. We combined the survey data with data from some of our own customers and colleagues in the business; there are a few points worth highlighting. We simply tried to take a general temperature of the industry as it pertained to technology.

Tech Budgets
Technology spend is not necessarily on the rise in a traditional sense. Only 30 percent of respondents are planning for increases in their technology expenditures this year and just under 10 percent are planning significant increases. These relatively low numbers likely account for normal refresh cycles and updates on items such as management software upgrades or website redesigns.

However, technology budgets are shifting. While only 30 percent say they will spend more on tech and lead generation, the numbers tell a different story if we separate the digital marketing/lead acquisition costs from technology in general. About half of the respondents say they will spend as much on online leads and digital marketing as they will all other tech expenses combined. Roughly 15 percent say they will spend more on online leads and their digital presence than on all other technology costs combined. Think about that, 15 percent of all operators will spend more on something that didn’t even exist 20 years ago than on all other technology concerns. Talk about a dramatic shift! And for the record, we didn’t even poll on Yellow Pages advertising expenditures.

Concerns And Priorities
When asked about primary technology related concerns for operators, web marketing/lead generation is on top with 30 percent of companies citing this as their primary priority for 2016. And while this number gets even larger if you start to combine related concerns over social media presence, 30 percent is low enough that we can infer that most companies’ primary concerns are somewhat fragmented.

To flesh out this fragmentation, we asked about all pressing priorities in 2016. The results caused a few things to stand out:

  • 40 percent worry about data security, cloud security, and overall data privacy.
  • 45 percent express concerns regarding systems integration and making the whole technology ecosystem work together.
  • More than 70 percent are focusing on revenue management concerns including keeping tabs on competitors and formal pricing methodologies.
  • More than 70 percent prioritize some aspects of their digital presence, including social media, digital lead acquisition, and SEO/SEM capabilities. Despite fragmentation regarding the top priority for many companies, digital presence is clearly a dominating and broad concern throughout the industry.

So how do companies feel about the technology they are deploying and the cost of this technology?

  • 40 percent feel that their technology spend provides a quantitative, adequate return on investment.
  • Another 30 percent feel that technology expenses provide a ROI, but through less measurable metrics such as ease of use for the site managers or simpler payment options for customers, things that differentiate one operator from another in the customer’s eyes or ease property management chores.
  • 25 percent look at their technology expense as a necessary evil, for lack of a better term. This is a real problem, in my opinion, when 25 percent of the industry still perceive tech as a detractor from the bottom line! 

To understand why 25 percent of operators are essentially dissatisfied with their technology solutions, we asked operators what they felt were the most significant limitations with technology solutions commercially available in our industry.

  • 10 percent want better revenue management capabilities, which seems out of synch given that more than 70 percent expressed concern over revenue management in an earlier question.
  • 50 percent want better integration with websites, call centers, and other interface solutions in general.
  • 15 percent believe that the technology is unreliable, which is a marked improvement from 10 years ago.
  • 25 percent deem technology as not flexible enough for the specific business processes of the operator.
  • Less than five percent cited the cost of technology as a source of their dissatisfaction. This one surprised me, especially considering that 25 percent responded earlier that they felt technology costs were a necessary evil. Perhaps the “evil” attribute of the costs comes from operators simply looking for better value as opposed to specific problems with their deployed technology?

In summary, the survey results confirm several things to us, as technology players in the self-storage industry. Primarily, that encompassing approaches to rental management and digital marketing require tightly coupled systems, and that while these technology costs may appear to be leveling, the real expenses are shifting. The true costs appear to lie in the complexity of these systems, the management of multiple vendors, and the time spent administrating these overly complex amalgamations.

A Better Way

There are always better ways to run any business. Technology should aid your operations and provide tools, not obstacles, to management teams. It should save you money in the long run and be justifiable both quantitatively in terms of hard ROI and in less tangible ways as well. When 15 percent of respondents feel that technology is unreliable, I’m looking for a better understanding of why.

Within their own spheres of expertise, the vendors serving self-storage are remarkably good at what they do. Our industry still enjoys the personalized service found in many smaller markets and specialized services provided for the various components of the self-storage business are very capable. I speculate that much of the unreliability is in the overall technology solution. Too much data going to too many places with not enough validation, updated less frequently than most businesses would like. In essence, this allows for too many points of failure and a relative staleness in business decision scenarios. We have multiple systems that work perfectly on their own but are unable to communicate efficiently without human oversight and support. This creates unreliability. While I’m pleased to see only 15 percent claiming their systems are unreliable, I’m surprised that this number is not higher and at the very same time disappointed that this number is not much lower.

Technology efficiencies in our industry have a long way to go. Most operators have no choice but to piece together complex solutions to cover their needs of their properties, their web presence, and their call centers, just to mention a few. In doing so, operators are often engaging as many vendors as they are customer and data touch points, which increases the drain on their resources and diminishes their overall efficiency.

Arguably, the economics of this multi-vendor to multi-customer touch point conundrum is costing operators in very tangible ways. Time and manpower alone is an economic drain, and the survey results highlight that 50 percent of operators are looking for better integration; 45 percent claiming integration issues as a top level priority for the coming year.

Economies of scale are a significant factor in today’s technology. A well-designed website or call center initially costs fractionally more per property. A REIT operating 1,000-plus properties is bearing a per-property cost at a fraction of the spend of a 10-property operator. That same REIT can deploy a team of revenue managers, an IT staff that properly administrates systems across the enterprise, and spend in the SEO/SEM space with far more bang for the buck, especially in dense markets in which they have a concentrated presence.

Let’s focus on the cloud for a moment to further illustrate economy of scale as it pertains to equaling the playing field for single proprietors and the self-storage goliaths. Even the largest players in our industry are leveraging cloud-hosted systems to reduce internal technology expenses while even using the cloud to host their own proprietary technology stacks. Yet far too many small business owners still view the cloud with a skeptical eye in terms of security, availability, or a variety of other reasons.

The concept of hosted IT services has become a mature, almost universally accepted way of doing business in 2016, and the cost of putting your own servers in a closet on premise is a needless waste. It’s almost certainly less secure, less reliable and less scalable, and exacerbates integration with other systems. If you take away one bit of advice from this article, let it be that the cloud is an integral part of any serious technology solution.

The Real Cost

As emphasized earlier, spending on technology is up but only marginally. In some sense the rise in technology costs are well within normal expectations, but the true cost for most companies is in addition to the checks written for software or the salaries of IT staff and consultants.

Operators need data to drive systems outside of the rental management system. Call centers, kiosks, and websites are all dependent on data. Operators need to understand their customers in order to make better decisions on pricing, marketing, and even build/buy/sell decisions. Data integrity and data freshness are important issues across the board. Incongruent systems that are not knit together in such a way that the exchanged data is foolproof and timely tend to complicate everything within the system.

Lack of industry wide standards for interfaces means every integration is a new problem to resolve and requires they be solved from scratch with more and more distinct nuances and issues to overcome. Integrations are buggy and inevitably burdened with integrity and validation issues as well.

To belabor this point even further, it seems counterintuitive, at least to me, that the biggest operators have the best understanding of their customers. Small operators may know the names and faces of their customers, but before you click on the “rent now” button on a REIT website they already know the customer’s likely length-of-stay and which promotions to offer or exclude based on the data they have analyzed from current and past customers. Married with data points they obtain from a customer’s mere presence on their website, small things like which browser the potential customer is using or the operating system of their computer or mobile device provides a plan for maximum revenue from a customer who has not yet placed a lock on the roll-up door.

This data helps the company fine tune promotions, determine when to change rates, and, most importantly, how to beat their competition just down the street. Companies understand what retail their customers are likely to purchase, their demand for insurance products, and if they will sign up for auto-pay. They will even use credit card brand data to nuance even further their sensitivity to rate increases.

Data integration and the complexities highlighted above are the driving motive for the largest operators to take technology solutions into their own hands. Unfortunately, this expensive proposition is the exact cause for the growing technology gap that is changing the game for smaller operators. A new class of technology is due in our space.

Required is a new approach to these problems that can level the playing field and must be demanded by smaller operators from the vendor community. No single vendor will ever be able to do it all. However, I believe that more holistic solutions will go a long way in alleviating this gap. However, the ultimate solution also includes vendors working together to create standards and approaches to the business that will empower the smallest operators to keep pace. These solutions will also go beyond software; it’s data that is empowering the most successful organizations today. Data that helps drive decisions in every facet of self-storage.

James Hafen is the industry principal and general manager of self-storage for Yardi Systems.